300802 Flashcards
Securities of a subsidiary that are convertible into parent company’s stock shall be considered:
not parent company shares for purposes of diluted EPS.
potential common shares of the parent to the extent that they are likely to be converted.
potential common shares of the parent for consolidated diluted EPS.
potential common shares of the parent to the extent that they are converted.
potential common shares of the parent for consolidated diluted EPS.
Securities of a subsidiary that are convertible into parent company’s common stock are potential common shares for diluted EPS.
Convertible
A convertible provision is a provision specifying that a debt instrument or preferred stock can be exchanged for (converted into) other securities of the issuing corporation, usually common stock, at the option of the debt holder or stockholder at a specified rate within a specified time period. The conversion rate specifies as a ratio the number of shares of common stock that will be issued upon the conversion of some unit of the convertible instrument or security (e.g., 3:1, three shares of common for each share of preferred or three shares for each $1,000 bond). A convertible provision is an important consideration in the computation of earnings per share. Converted preferred shares are formally retired.
A convertible provision is recorded on the basis of the book value of the converted security.
2142.10
Several definitions are important in an understanding of the dual presentation of EPS (earnings per share) for enterprises with a complex capital structure.
a. Dilution (dilutive): A reduction in EPS resulting from the assumption that convertible securities were converted, that options or warrants were exercised, or that other shares were issued on the satisfaction of certain conditions
b. Antidilution (antidilutive): An increase in earnings-per-share amounts or a decrease in loss-per-share amounts
c. Potential common stock (PCS): A security or other contract that may entitle its holder to obtain common stock during the reporting period or after the end of the reporting period
d. Weighted-average common shares (WACS): The number of shares determined by relating (a) the portion of time within a reporting period that common shares have been outstanding to (b) the total time in that period. In computing WACS, retroactive application is given to stock splits, stock dividends, and shares of common stock issued in a business combination accounted for as a pooling of interests (i.e., they are treated as if they were outstanding for all of any periods presented).
e. Basic EPS: The amount of earnings for the period available to each share of common stock outstanding during the reporting period
f. Diluted EPS: The amount of earnings for the period available to each share of common stock outstanding during the reporting period and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period
FASB ASC 260-10-55-20
